Anne Arundel General Hospital, Inc. v. O'Brien

Liss, J., delivered the opinion of the Court. On June 30, 1980, four radiologists, Robert W. Frazier, M.D., Matthew J. Cerny, Jr., M.D., Joseph F. Smith, M.D., and Stephen R. Brown, M.D.,* 1 and their professional association, including each of the named doctors (hereinafter the "Frazier P.A.”), filed a bill of complaint in equity in the Circuit Court for Anne Arundel County against the Anne Arundel General Hospital, Inc. (hereinafter the "Hospital”), the Hospital’s administrator, Carl A. Brunetto (hereinafter "Brunetto”), Barry H. Friedman, M.D., (hereinafter "Friedman”) and Barry H. Friedman, M.D., P.A. (hereinafter the "Friedman P.A.”). David A. O’Brien (hereinafter "O’Brien”) and his professional association (hereinafter the "O’Brien P.A.”) filed a ³⁶⁴ similar declaration in law against the same defendants.

The bill of complaint and declaration alleged breach of contract, equitable estoppel, interference with business relationship, violation of federal and state antitrust laws, fraud, and violation of due process. The plaintiffs sought ex parte interlocutory and permanent injunctive relief, damages, and prayed a jury trial. On June 30,1980, the court issued orders denying the requests for ex parte injunctive relief. On July 25, 1980, the action filed in equity was transferred to law and the two cases were consolidated.

On August 18, 1980 a seven-day evidentiary hearing was held on the radiologists’ request for an interlocutory injunction. At this hearing the plaintiffs requested the court to require the Hospital to reinstate their privileges at the Hospital pending the final disposition of the case and further sought to have the court require the Hospital to grant the radiologists a hearing on their entitlement to privileges at the Hospital. By memorandum and order the trial court directed the Hospital to grant the radiologists a hearing on the question of their right to privileges at the Hospital; but denied their requests for temporary reinstatement and denied interlocutory injunctive relief as to Brunetto, Friedman and the Friedman P.A. The trial court based its decision on the following four reasons: 1. The Hospital’s bylaws guarantee a due process hearing whenever privileges are terminated. 2.

The Fourteenth Amendment right to due process protects the radiologists against termination without a hearing. 3. Substantive due process required the Hospital to demonstrate that the termination of the radiologists’ privileges was not arbitrary and capricious. 4. A hearing granted O’Brien in a prior privilege dispute set a precedent for granting a hearing to the radiologists. From these judgments, appeals and cross-appeals were noted.

In the interest of clarity we shall indicate the status of the parties in these appeals. The Hospital and Brunetto are ³⁶⁵ appellants and cross-appellees. Friedman and the Friedman P.A. are cross-appellees only. Frazier, Cerny, Smith, Brown and O’Brien and their several professional associations are appellees and cross-appellants.

Although the appellants raise four issues in their’ briefs, we conclude that a decision on one of the issues is dispositive of the others as well. That issue is: Whether the radiologists were entitled to a hearing on their asserted right to continue to have medical staff privileges at the Hospital? The statement of facts presented by the appellants is as follows: Frazier, Cerny, Smith, Brown and O’Brien provided radiology coverage to the Hospital pursuant to a contract which expired on June 30, 1980 and pursuant to medical staff privileges granted by the Hospital which expired on the same date. Four of the physicians were shareholders in the Frazier P.A. O’Brien provided radiology coverage under an agreement with the Frazier P.A. The radiologists were not admitting physicians but were "hospital based physicians,” i.e., they did not admit patients to the Hospital; they were not responsible for the overall care and treatment of the patient; they performed certain diagnostic tests and procedures only upon the request of the admitting physician and reported their findings to the admitting physician for his information.

Both the Frazier P.A. and the O’Brien P.A. maintain offices outside the Hospital where they perform tests and diagnostic procedures upon request of physicians for non-hospitalized patients. The Hospital is an acute, non-profit, tax-exempt community hospital, licensed by the State of Maryland and accredited by the Joint Commission on Accreditation of Hospitals. It is a provider of care under contract with the Medicare and Medicaid programs. It is a private hospital controlled by a governing board (the Board of Managers, hereinafter the "Board”) elected by members of the corporation.

It received certain financial assistance from Anne Arundel County, and the Federal government under the ³⁶⁶ Hill-Burton program. The defendant Brunetto is its administrator. Friedman is a physician who (by the Friedman P.A.) contracted to provide hospital coverage as of July 1,1980 for all "diagnostic imaging” services which includes radiology, nuclear medicine, ultrasound and computerized tomography scanning. On January 24, 1980 the Hosptial and the radiologists entered into an agreement extending the terms of their existing contract to June 30,1980.

The extension agreement stated, in pertinent part: 1. The terms of the Agreement are extended until June 30, 1980 at which time it shall automatically terminate without any notice or action on the part of either the Hospital or the Radiologists. 2. It is expressly acknowledged and agreed that after June 30, 1980 there shall be no agreement in effect between the Hospital and Radiologists or between the Hospital and any physician officer, shareholder, employee or contractor of said Radiologists, unless said agreement is in writing and duly executed by the parties thereto after February 1, 1980. No subsequent agreement was entered into and the contract expired June 30, 1980.

On the same day that the contract was extended, the Hospital Board also granted staff privileges to Frazier, Cerny, O’Brien and Smith 2 for the same time period — through June 30,1980. This was a departure from the usual Hospital reappointment practice of granting privileges for a full medical staff year. Accordingly Brunetto sent each a special notice in addition to the standard appointment letter. Each ³⁶⁷ radiologist signed an acceptance of the appointment and none objected to or appealed from the appointment of limited duration.

On June 30, 1980 the contract and medical staff privileges expired. On January 24, 1980 the Hospital Board appointed Friedman chief of the imaging department, after a formal selection process. The imaging department was a newly created consolidation of the former radiology and nuclear medicine departments. The terms of the Hospital’s contract with the Friedman P.A. became effective July 1, 1980.

The Friedman P.A. negotiated with the radiologists but never reached agreement and the Friedman P.A. contracted with other physicians. The radiologists sent Brunetto requests for applications and subsequently requests for medical staff, privileges in radiology. He returned the applications to them citing the Hospital exclusive contract policy and the Hospital contract in effect with Friedman. The physicians requested and were permitted to appear before the Hospital’s Medical Board (composed of staff physicians), to state their concerns about the status of the radiology department.

The Medical Board passed a resolution communicating to the Hospital Board, among other things, concern for continuity of care of patients with respect to radiology services. The Hospital Board President had the matter investigated by a subcommittee of its Joint Conference Committee, and the Board received assurance that adequate coverage would be provided by Friedman. In addition to the facts above stated, the appellees have included in their brief from the record the additional factual material: Frazier, at the time the controversy arose, had been performing radiological and related services and had had hospital privileges at the Hospital for nineteen years. Cerny had had privileges for thirteen years and Smith for three years.

The Frazier P.A. contract between it and the Hospital was originally entered into on July 1, 1979 and continued until July 1,1980. The hospital privileges enjoyed by the individual radiologists were also renewed from year to year. There has been no suggestion that the services ³⁶⁸ rendered by the radiologists were less than competent. Appellees contend that during the period from June to September, 1979 (when the Hospital was considering the consolidation of the radiology and nuclear departments) they were assured by the Hospital that consolidation would not jeopardize the continuation of their privileges at the Hospital.

The appellants contend that the record shows that the radiologists lost the Hospital contract as a result of the two following Hospital policy decisions: (1) to consolidate radiology and nuclear medicine into one department; (2) to appoint Friedman as chief of the new department and as contractor to provide coverage. They suggest both policy decisions were made in accord with Hospital decision-making procedures after the radiologists and other medical staff members had opportunity to present their views. They state that since 1976, the Hospital had been concerned about problems arising from separate diagnostic imaging services (radiology and nuclear medicine). Furthermore, the Hospital desired a chief without separate outside office commitments who was agreeable to "combined billing” under Maryland Health Services Cost Review Commission rates.

The Hospital Board voted on September 27, 1979 to consolidate the two departments and on October 25, 1979 approved a plan of action. These decisions followed a recommendation of the Hospital Planning Committee as provided for by the Hospital corporate bylaws, and its special subcommittee after review and study which included: notice to all radiologists and opportunity to comment; review of letters from Cerny, Smith and Friedman; comments to the committee from all radiologists; a report by the Hospital administration; reports to the Hospital medical staff about the inception, progress and outcome of the study. The committee and the subcommittee contained physician members, one serving as chairman. The medical staff was advised of the plan of action to establish the imaging department.

A ³⁶⁹ motion to express staff concern and request further study was defeated at a medical stall' meeting. After the new department was established, the Hospital Board selected Friedman as its chief. A selection committee of the Hospital Board President, the administrator and the President of the Medical Staff solicited expressions of interest and formal applications, reviewed applications, interviewed the applicants (Friedman and Smith, twice), and unanimously recommended Friedman. All radiologists but Frazier applied.

None of the applicants complained about the fairness of the selection process. All of the parties to this appeal agree that the Hospital has the right to establish and implement a policy of providing hospital based diagnostic services by means of an agreement with a contracting physician to the exclusion of noncontracting physicians. In Radiology Professional Corporation v. Trinidad Area Health Association, Inc., 195 Colo. 253 , 577 P.2d 748 (1978), the Colorado court, in upholding an exclusive contract between a hospital and an association to provide radiological services, stated: Contracts which limit the use of a hospital’s facilities to certain specialists or which provide that all services of a particular type required by hospital patients be performed by the contracting specialists have been upheld by courts which have considered their validity. [Citations omitted.] 577 P.2d at 751 . In Blank v. Palo Alto-Stanford Hospital Center, 234 Cal.

App. 2d 377 , 44 Cal. Rptr. 572 (1965), the court stated: [a]n examination of the nature of the speciality of radiology, of the hospital’s responsibility for providing radiological diagnostic facilities, and the manner in which the Hospital Center’s Board resolved the question of how to furnish such facilities, sustains the trial court’s findings that "the exclusive contract method of operating the Palo Alto Diagnostic X-ray Department was, and is, a reasonable and proper method of operating the department. * * *” 44 Cal. Rptr. at 578 . ³⁷⁰ See also Letsch v. Northern San Diego County Hospital District, 246 Cal. App. 2d 673 , 55 Cal.

Rptr. 118 (1966). Appellees do not challenge the Hospital’s right to enter into exclusive radiology contracts especially since their own professional association was granted these exclusive rights in their original contract with the Hospital. Rather, the appellees challenge the termination of their hospital privileges which they contend exist separate and apart from the exclusive contract entered into between Friedman P.A. and the Hospital. Appellees urge that these privileges cannot be extinguished except in conformity with the procedural and substantive due process requirements prescribed by the Hospital’s corporate and Medical Staff bylaws, which are binding on the Hospital.

They cite in support of this contention Article V, Section 6 of the corporate bylaws of the Hospital which provide in pertinent part as follows: [The Board of Managers] ... shall have power to terminate or suspend privileges granted to physicians and to terminate employment of all hospital personnel after the giving of notice and an opportunity for a hearing in compliance with due process requirements. It is well settled that hospital bylaws have the force and effect of an enforceable contract. Berberian v. Lancaster Osteopathic Hospital Association, Inc., 395 Pa. 257 , 149 A.2d 456 (1959); St. John’s Hospital Medical Staff v. St. John Regional Medical Center, Inc., 245 N.W.2d 472 (S.D. 1976). Our independent review of the Hospital’s bylaws convinces us that the elaborate procedure for hearing and review set out in Article IX of the bylaws 3 does not apply to this proceeding.

The article which is titled "Fair Hearing Plan and Appellate Review Procedure” contemplates the initiation of an adverse recommendation as to a practitioner ³⁷¹ which would result in an unfavorable decision on his status as a member of the staff or his right to exercise clinical privileges at the Hospital. The provisions for hearing and appeal which are set out in Article IX of the bylaws are intended to guarantee due process review by the Board of Managers, the Medical Staff, and the Medical Board of any adverse recommendation. It seems clear to us that this procedure presupposes notification to the practitioner that he has failed in his duties to the Hospital, his patients, or in the competent practice of medicine. Obviously a doctor faced with charges of this kind must be given a due process opportunity to defend himself.

The case here at bar, however, does not fit into that category. Here Frazier and the other radiologists had an exclusive contract with the Hospital which protected them from competition from other competent radiologists. The contract had a date certain as to when it began and when it was to terminate. By agreement between the parties the exclusive contract was renewed until July 1, 1980 and it is not disputed that the Frazier P.A. was to retain exclusive contractual rights until that date.

At the same time, another agreement was executed between the parties which clearly stated that the appellees’ privileges were to be extended only for the same six-month period as their exclusive contract. Appellees made no objections to